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tv   Today in Washington  CSPAN  November 24, 2010 7:30am-9:00am EST

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to have is delivered by the money we spend. we have to do that across the public sector any government we'd have to do that but i'm happy to take up her individual case. >> andrew bingham? >> and in my constituency have suffered due to excessive traffic. as we try to get the best from the meager resources from the party opposite -- what -- what -- what words can the prime minister offer his encouragement to the residents that will bypass us in the future. >> they don't like to hear about the mess they left this country in. but just in case there aren't any doubt, we'll be talking about the mess they're making not in five months time but in five years time too. now, in terms of transporting expenditure, we are spending 30 billion pounds on transport investment. that is more than government and
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the party opposite planned and that means there will be schemes ahead and i wish him well with the work he'll be doing with the department of transport. >> it's now nearly four years since the collapse that left hundreds of people thousands of people throughout the country without a christmas. they have not received one penny compensation or or an explanation yet. will the prime minister meet with me to bring this story to a conclusion as soon as possible. >> i well remember the case the right honorable lady who did not get a christmas and i will sort out for her to have a meeting with the business department to see that we can bring this sorry episode to a close. >> order. statement -- >> here on c-span2 we'll leave the british house of commons now as they move on to other legislative business.
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you've been watching prime minister's question time aired live wednesdays at 7:00 am eastern while parliament is in session. you can see this week's question time again sunday night at a 9:00 eastern and pacific on c-span. and for more information go to c-span.org and click on c-span series for prime minister questions plus, links to international news media legislatures around the world. >> in a few moments a forum >> here are some programs c-span is airing thursday starting at 10:00 am eastern. jeff bridges talks about his work to reduce youth hunger. jane goodall and her love
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>> if 1983 president reagan signed a law to reform social security based on recommendations of the so-called greenspan commission. next, a forum on the effect of that 1983 law and ways to
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improve social security. the nonpartisan national academy of social insurance hosts this hour-long discussion. >> hi, good afternoon, everyone. welcome. you're here for the national academy of social insurances, a panel on strengthening social security for the long run with insights from 1983. i'd like to welcome you. i'm lisa men saw. -- mensh and i also serve as the chair of the board of the national academy of social insurance so welcome. we are thrilled to have you here. on the day before our big national holiday or before almost everybody leaves for the holiday. to really talk about one of the things that we are truly grateful for, our social security.
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and today we have an exciting panel and a very interesting exercise which is to look back a bit in history. my job is to introduce our panel and to also tell you why we conceived of this event the way we did and then to get out of the way but let our panel start and also to come back when it's time for your questions and answers. so let me tell you a little bit about my panelists here. you are really treated today. while 1983 i was busy typing my senior thesis on an ibm selectric typewriter which none of you know what that is anymore, this team was all involved with the social security greenspan commission so you have a real set of experienced people. to my left is janice gregory, janice is the president of the
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national social science and she's a founding member of the academy. in 2006 she retired as the senior vice president of the erisa committee. you see we haven't let her retired from anything. he keep her very busy and particularly relevance for today's event in 1979 to 1983 she was coordinating the activities of the subcommittee on social security in the house for its chairman, the honorable j.j. pickle of texas. and she was instrumental when the landmark social security legislation of 1983 was enacted so, janice, welcome. we're looking forward to your insights. next to janice is virginia reno. and she's vice president for income security. she directs the work on retirement income, on workers' compensation objects disability insurance and related programs. and if you don't know it, virginia is truly our capitol's treasure on all things about these programs. she's worked for four major commissions on social security including the 1983 greenspan
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commission and has published deep research on social security, private pensions retirement policy and more recently public opinions on social security. our discussant is we understandal premise and he works for speaker nancy pelosi and he too was instrumental in 1983 serving on the staff of the house, ways and means committee and also six years as the committee's chief economist. wendell, we are thankful to have you here today and to give us another perspective on the paper we are doing. you should have received, when you walked in, a paper that's just been issued, a new brief called strengthening social security for the long run. that's very much -- and if you didn't get it, it's available on the nasi website. also today we are -- this is the month we released an important book by tom bethal and -- excuse
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me, by robert ball edited by tom bethal what really happened, the story of the greenspan commission and so that's available, too and i think, tom, you are in the audience, our editor today. that's tom. thank you, tom. so we have an exciting panel, great new materials and a real new take. i want to say a few words about why we're here and why we're looking back in this year, in 2010. in part we're here because this is a story that's not being talked about a lot. today's headlines are all about the potential cuts we could make in our public budget. but the story of 1983 is a story about cuts that were made at that time to the social security program and are still being faced in. -- phased in. it's not well understood and we want to put the record straight about the kind of balance that was achieved in 1983. in fact, much heavier on cuts,
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cuts that are still being phased in and give you a picture of what a different approach to strengthening social security for the long run would be. so that's our task today and i want to welcome up janice. so thank you. >> good afternoon. and thank you for being here. and as lisa said, we hope to give you new thoughts to chew on as you head off to the great meal. although i don't expect you to think about this while you're enjoying thanksgiving dinner. but we do want -- our job at the academy is to -- is to broaden people's viewpoints and to talk about things that aren't being talked about. so that as policymakers and as legislators and those of you who must help legislators, you come at each problem with -- with
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these problems with the broadest possible groundwork and information. so what we want to talk about is today and compare it to 1983. in 1983, it's important to remember we had to act immediately in order to continue to pay benefits on time. it was as though today we're really 2037 instead of 2010. a quarter of a century earlier. in 1982 and 1983, we were cashing in the trust fund bonds right and left. and they were expected to run out in midyear 1983. leaving only new and at that time deficient revenue to pay ongoing benefits. so how did we get there? i think it's helpful to back up a bit before we get into the greenspan commission solution.
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in 1982 -- in 1972, we indexed social security benefits. before that, the rates and the benefits had been reset from time to time but only on an ad hoc basis but there was a flaw in the '72 indexing mechanism that had benefits increase faster than revenues. so in 1977 we had to go back and we corrected the flaw. under the correction initial benefit levels increased as wages go up in the economy and after benefits are started they increase by inflation and that's the basic setup that we have today. the problem was that after '77, we walked right into a period of low wage increases and high inflation. which meant that revenue based on wages slowed down while benefits depending on cpi sped up.
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in fact, if '79 to '82, prices increased faster than wages at that time and unheard of an economic event and that set the stage for things you heard labels like stagflation and when combined with high unemployment we had this thing called the misery index. it just was -- not only was it a bad time but it again mentor that revenues were not keeping up with the benefits. meanwhile, our little subcommittee over on the house ways and means committee was watching. we already were holding hearings and we were looking worried as early as 1979. and when i say "we," i mean, a bipartisan effort. it was a somewhat different time than what we faced today. people had strong views on each
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side and everyone stayed in the room and we talked to each other nonstop which i think is important to keep in mind. our game plan as a subcommittee, both sides, was to act in early 1981 so we had new things in place in plenty of time. but surprise came the 1980 elections. ronald reagan is elected president of the united states and the senate flipped to republican control. the reagan administration view when they came in was that they would enact very large tax cuts and everything including social security was going to be just fine. so the democratic leadership -- we're sitting over there on the subcommittee having holding our hearings and worrying about our numbers but they wouldn't let us introduce a bill because that would put us out in front of the president. so instead, we published something called of a draft committee print. and it looked like this.
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it was essentially a bill in narrative form printed -- i trust not minimumi graph but something that we had back then. and it was a narrative form of what we had done if we had introduced a bill. we held subcommittee meetings on it and we took votes. and as each topic came up, the subcommittee chair, my boss, jake pickle, would ask the administration person sitting in the front row what their position was on whatever topic we were discussing and, of course, we didn't have a position. after a while this began to look a bit strange. in april of 1981, jake pickle introduced a bill based on the subcommittee discussions, introduced it all by himself, no cosponsors and in may, the reagan administration published a social security proposal.
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their proposal was without exaggeration from comments from any side of the aisle, a disaster. among other things it cut early retirement benefits about 25% the following year. and it designated the disability program. the newly republican senate voted 96-0 to reject the proposal. speaker o'neill sees the moment as this was the first chink in the reagan armor and politics was off and running. so that was the climate in which -- in the fall of '81 reagan appointed a commission headed by alan greenspan to come up with a solution. the commission's deadline was after the '82 elections. remember, '83 is our deadline. the commission after the elections actually did agree that they needed about $185 billion to get social security
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safely through the 1980s which was the focus of their work. and you understand -- it's important to understand -- they really focused on the 1980s. in 1990 there was a tax increase already scheduled and in 1990, the baby boomers would be at the peak of their earning power. so the thinking was if we can just get to 1990 then things -- other things will happen and we'll be good. but they couldn't -- while they agreed on the size of the problem, they could not agree on how to solve it. the commission did not come together. reagan extended their deadline a few weeks and then secret meetings were held between representatives of speaker o'neill and president reagan. and these two titans who were out blasting each other in the public day by day, they worked together behind the scenes and they came up with an agreement
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to get the program through the '80s and that was endorsed by most of the commission members and it was sent to congress in january of 1983. now, it's important -- again, in your brief you have a detailed outline of what was in the agreement in the short term on page 3 but also notice that it was fairly balanced. it had about 16% to get -- in terms of getting us through the '80s. it had about 16% for new coverage. it had about 39% from reductions that affected beneficiaries and about 44% from increasing from contributors. so congress adopted this short-term plan. we just ran with it. because we had only weeks to spare. but the commission's short-term proposals two-thirds of the long-term problem facing the problem at that time.
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but they didn't address the gap. on the commission most democrats favored a tax increase, most of the republicans favored increasing the age for full benefits. in congress you had a slightly different mix. some believed we should address the long-term later. jake pickle and dan rostenkowski wanted to close the long-term gap and they went the route of raising the age. they brought along with them a number but not most, most of the committee democrats but not most of the democrats on the floor. and they won. congress enacted the increase in age and added that to the greenspan package and there is two things to notice here. one, as of simple factual matter
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it's important to understand that anytime you increase the full benefit age, it lowers the benefit at any age that you collect them. so that if you wait till '67 to take your benefit, your benefit at '67 is lower than it would have been without the change. so it affects people all up and down the line. the second thing is to notice what this does to the so-called balance of the '83 amendments. of the long-term savings -- and again, there's a chart in your pack -- in the brief, i think it's on page 5. it details when what you wind up with that 70% was from reductions for beneficiaries. 10% were from those who contribute to the program and 20% was from coverage extensions.
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so the balance shifts dramatically to a long-term reduction in benefits and the cuts for beneficiaries are still being phased in. it's probably useful to also remember a couple of things. one the package worked. i remember i wouldn't let my boss, pickle, claim any more than 30 years that we had done something that would last 30 years. indeed, it's lasting well over 50. the second thing is to remember that in 1983, erisa, the pension law was less than 10 years old. we thought blossoms were going to -- pensions were going to blossom in the future. housing was on the upswing, interest rates provided good returns to savers and health care was really cheap. that's mind-boggling but it was. so there's -- there was a lot of
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reasons to think that individuals had many resources other than social security. now we know that today the first four quintiles of beneficiaries are heavily dependent on social security. and we need to look to its future of affordibility. so we're going to take a look at that. here's a chart showing the cost of social security as a percent of gdp. it goes from about 5% today up to about 6% as the boomers retire. but then it levels off. this is not a major primary source of our deficit and mandatory spending problems. it just isn't. it's nearly flatlined. the next chart shows that the number of folks receiving benefits is going up considerably more than the increase that you saw on the prior page.
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total beneficiaries are going up over 65 retirees from 13 to 22% of the population. so when you put these together, it means that benefits per person already are going down in the future. and i'm going to skip one chart and come to this one. here's what it looks like. if you look at today we're getting about 39% and an average earner gets at age 65 after they pay their medicare premium they get a 39% replacement of their lifetime average earnings. by 2030, that's already going to go down to about 32%. this doesn't count taxing social security benefits so it really understates the problem because more and more benefits are going to be taxed going forward.
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so it's important to think about as we go forward benefits are modest. they are about $14,000. but they are the main source of income for most beneficiaries. replacement rates are declining in the future and all those other things that we were counting on, cheap health care, pensions, home values, even jobs are much less secure than they were in 1983. so what we want to do is now look at some policy options that you might not otherwise see. so that you have them in your kit bag. as you continue to work on this issue with us and with the rest of the country. and for that i'm going to turn it over to virginia.
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>> well, thank you, janice. and thank you all for being here. we're really delighted that you are able to be here when turkey dinners are calling all across the country. i'm delighted to tell you about our particular policy options that we talk about in our brief. we have two modest options for improving the adequacy of benefits, one affects families, the other affects elders. and we have a three-part financing plan that's illustrative of how we could pay for social security without a great deal of pain and without reducing benefits. first on the option to improve security for families, by the way, all of these options are -- have precedent in history. they are things that have been thought about in the past and well thought through.
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between 1965 and 1981, social security paid benefits for children of retired disabled and deceased workers until those children completed college or until they reached age 22. this turned out to have been a great boon for those young adults but in 1981, the benefits were eliminated out of concern for not being able to afford social security. what we found in research since those benefits were ended is that they really did make an important and positive difference to the chances of young adults to attend college. particularly, for children of blue collar workers, for low-incomed families, and for minority young adults. it's also -- and to reinstate those benefits, targeting children of disabled and deceased workers has a very modest cost. it would be .07% of taxable
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payroll which is the way we think about how financing for social security. translating that to dollars i think it's $35 a year or 70 cents a week for a worker making $50,000 a year. it's not a huge amount of money. and that's the cost assuming no improvement in the educational attainment of young adults but clearly if more young people go to college, they'll earn more and that could help finance a stronger social security system in the future. the second improvement is for vulnerable elders to simply lift the floor of benefits for those who have long careers at low pay. such a benefit was enacted in 1972. but it did -- because the entry level of those benefits didn't keep up with wage growth, it gradually became less and less effective in lifting the benefits of those long service
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low paid workers. so to update that benefit and ensure that a worker retiring at 62 could retire and have a benefit above the poverty level would cost about .13% of payroll, again, a fairly modest cost. in our report we discuss a number of other ways to improve adequacy but these are two that we're talking about in this brief. in terms of financing plan, it has two parts that would broaden the base on which social security taxes are levied. that's 6.2% that workers and employers each pay to pay for social security benefits. and the first part would lift the cap on wages to cover 90% of aggregate wages and covered employment. the last time congress thought about what this cap should be was in 1977. they set a goal of 90%. and they gradually adjusted it to get to 90% by 1981.
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and then they provided that it should be adjusted every year by the change in average wages with the idea that it would remain covering about 90% of aggregate wages. about 6% of workers earn more than this cap. 94% earn less but that 6% who earn more had much bigger wage growth than everyone else and so we now it no longer covers 90%. it only covers about 83% of all wages. so to phase in this cap to get back to covering 90% of wages would eliminate about 39% of the long-term shortfall in the social security system. a second change would treat all salary reduction plans like 401ks. in 1983, the greenspan commission thought about how we should treat 401k contributions for social security purposes. these 401ks were brand-new and the contributions were
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definitely exempt from income taxes but they asked the question, should they be exempt from social security and medicare taxes? the greenspan commission said, no, they should be covered. that those wages should be part of what social security replaces and workers and employers should pay taxes on those contributions. so the greenspan commission recommended that. congress adopted that and that is now the law today. what this proposal would do would apply the same concept to similar kinds of plans that since 401k plans were adopted. and to treat those like 401ks would eliminate another 13% of the long-term shortfall in social security. so these two things together broadening the base would eliminate about half a of the long-term shortfall. the third piece of a financing plan is also based on history. and that is to gradually
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schedule out in the future small increases in the fica rate of 6.2%. throughout most of the history of the social security program, there have been rate increases scheduled out in the future. and certainly when we anticipate a larger population beneficiary system it would make sense to plan revenues to match that need. to do this, policymakers have options about how to schedule it. certainly you would not have it go into effect now. social security doesn't need the money now. and our economy doesn't need a tax increase on all workers right now. but if policymakers acted now and scheduled, say, 15 years out into the future we could avoid drawing down the reserves in the social security trust fund. keep the reserves up. that would also allow interest
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income on the reserves to be a continuing source of income for the social security system. right now interest is about 15% of the income to the social security system. so that would be -- to maintain that instead of just depleting the trust funds could -- would seem like good policy sense. ...
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>> we asked whether people agree or disagree with the statement i don't mind paying social security taxes because, in the kind of fill in the blank. most people agree part of the reason is they expect to get something from the program. even a larger number said they agreed because were it not for the benefits they would end up having to support or help support their own aging families. and finally the largest group of greedy, 87% said they don't mind paying for the benefits because it provides security and stability to millions of retired americans, the disabled, and children and widows of deceased workers. what is striking about this high level of agreement that they're willing to pay is it cuts across party lines as well as for the whole population.
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87% of all americans, 93% of democrats, 85% of independents, 81% of republicans. in a similar question we asked whether, in the time of economic turmoil, should we be thinking about shrinking government commitments, including the social security, or should we be investing more in strengthening these programs. and again, the overwhelming majority said that it's more important than ever to strengthen social security to make sure that retirees, the disabled, and families can count on secure benefits for generations to come. again, overwhelming majority among the total group, among democrats, among independents, among republicans it was more or less even divided. evenly divided. but overall, there was a strong level of support. and finally, when asked should
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we pay -- excuse me. is important to preserve social security even if we have to pay more. and again, 70% said yes, it's important. we are willing to pay more if all of us have to do that. a similar proportion of greed when the question focused only on upper income americans. other organizations have also had similar polling results, including americaspeaks which held townhall meetings around the country this summer. and in their final analysis, they found their focus was on the deficit overall, that he did have a session on social security. but no benefit cut vision had a support of the majority of their participants. 50% did support raising the social security tax rate, and 60% did support lifting the cap on earnings. the aarp has also done surveys
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more recently, and found that most adults under 50, the majority, would rather pay more today to preserve future benefits than to pay the same amount today but get less in the future. so to recap, social security is affordable. as the 1983 cuts made income inadequate benefits become a growing problem. so targeting improvement, to 75 year revenue plan seems to reflect what americans say they want. turn it back to lisa. >> we are going to bring wendell up now to get a reaction to the statements that were made here. >> well, good afternoon. i'm also glad to be here, and have comments on this paper.
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you know, this paper comes in a point in time to do we just have to deficit commissions issue reports about how social security could be restored, primarily on the benefit side to this caper takes a different attack and i think and i think all of social security ought to read because it contains some very important insight. i would like to make four important points. the first really is the insight from this paper, one kind of gets distorted by history or whatever. think about the 1983 social security amendments being a balance which was in the short run, but in the long run it really was primarily on the benefit side. and the amendment that congress did to the greenspan commission were all on the benefit side. that's really the important insight. one can make, as these two deficit commission reports have
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suggested, they case for raising the retirement age or reducing benefits somewhat, as longevity increases the benefits become more generous because people are living longer. but i think this chart, more than any other, really defeats that argument. and from 39 to 35, what does this chart show? it shows that between 2005 and someone retiring at age 65, after medicare premiums are taken into account, social security replaces 39% of those wages. 25 years later, that same benefit only replaces 32% of an average worker's wages. so that's an 18% decline. it goes from 39 to 35 because we raise the normal retirement age from 65 to 67.
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we go from 35 to 32, because medicare premiums are growing a lot faster than inflation. and i would quibble with this chart in one important sense, and that is also as part of the 1983 amendment more and more of the social security benefit is tax. 25032000, 25,000 or single, 32000 for a couple. were not indexed for inflation. they were held constant in nominal dollars. so over time more and more social security benefits are being taxed. if you took that into account, if you want to quibble a little bit about the assumption, that would take a 32% down to 29%. so we've got essentially from replacement rate for an average worker of 39%, and many take all into account to 29% for that period, a 26% decline.
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and sgs showed in an earlier chart that's the reason social security benefits as a% of gdp are really flat. in fact, when 6% benefits decline that is off setting almost completely the fact that more, there are more elderly in this country and the baby boom generation is about to retire. i wish they had taken it one step further and look at this interaction between medicare and social security a bit more. as probably most of the elderly know, they haven't gotten a social security benefit increase for two years. in january of 2012, the economists tell us we probably are going to get about 81% increase in cole, given current inflation trends. that means for someone with 1000 our benefits, the benefit is going to increase by $10 a
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month. however because also medicare part d. premiums have gone up anytime there's a frozen cola, we're probably going to see at least, at least a 20-dollar increase in part b. premiums come january 2012. therefore, for a typical elderly person their goal is going to go up, and it's going to completely be taken a way by the other hand of government by medicare part b premium increase. and this is a problem which could go on for a couple of years, depends upon inflation. democrats a couple of years ago introduced a bill that tackle this problem come and basically would have guaranteed to the elderly at least 75 or 80%. again, taking that same person who gets a 1% increase, it would protect at least $7.50, or $8 of
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that trend for increased to take of inflation in food, energy, rent and the like. and i think that's an important phenomenon that the two deficit commissions, the obama administration have to think about, as we enter this period of hopefully very low inflation. but the interaction between social security and medicare. my second point is, i think it was an important context, and virginia alluded to it, but the point i want to stress is that social security was made solvent for 58 years before we had the great recession. now it's 54 years. rostenkowski and pickle basically use a short-term crisis to make the program solvent in the wrong run. the officer probably have today. we have no short run, social
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security solvency problem but we could use our deficit problem to make social security better. but they ought to be done by social security's terms, not on budgetary terms. and i think it was the right decision at that time. one, because it is to the test of time and just prior to the 83 amendments there didn't, there was the wilbur mills 20% increase in 1972, there've been a lot of short-term increases in the payroll tax, and there was no the itc in the tax code at that time to offset those payroll tax increases. we are any different world today. we haven't had any tax increases. there's been a 6.2% dedicated to social security for the last 30 or 40 years. and if not, going to go up. we now have the itc, at least protecting workers with
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children. so i think, i think there's one other thing i want to illustrate going back to this there. that one thing the 83 amendment did is we basically gave a choice to all workers, a fair choice of when to retire. if you retire at age 62 or 70. obviously, retire at 62 you would with a collect eight more years of benefits than someone who retires at age 70. but it is actuarially fair. so in essence, just look at the 83 amendment. this chart is making a different point, which is a correct point that increasing the age lowers the benefits at all levels. but just look at the 83 amendment. individuals gotten more if they retire at age 69, or if they retire at age 70 and he did under prior law.
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so the 83 amendments many made it possible for the american worker to choose at any point in that age span, from age 62 to age 70, when they wanted to retire. and it was essentially an actuarially fair decision. i think the thing to really stress is that the two political leaders at that time, reagan and o'neill, were able to reach an agreement. and that unlike most observers in this town that decry the conservative, the trust fund notion, it really is a conservative device. it forced the 70 7a minute, it forced the 83 amendments, and, you know, every american that studies this issue knows exactly how solvent social security is a cousin of his concept of the trust fund. my third point, in another important sector, having said that social security amendment
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works, it didn't work. because what the politicians were doing in the rest of the budget, when president bush took office in january of 2000, cbo said there was a 5.6. he didn't use any of that surplus to make social security more solvent. nor did he use that surplus to pull down the national debt, lower interest payments. so that this country would be in better place, and better fiscal shape for the baby boom generation which we have known for 65 years, was coming. and we didn't use the decade just before the baby boom generation retired to get ready for it, the retirement of the baby boom generation. and i would say that is really one of the greatest failures of the bush administration, which is gotten very little attention
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in the press. and, you know, if you again follow the money, the biggest problem we had in 1970 -- in 2000 was that the rich were paying too much money, too much taxes, because that's where we spend the money. my fourth point, i think the paper could have looked at some of the things. they saw the company social security solvency on the tax side, unlike the other commissions. and i applaud them for putting this paper out there for that very purpose. but i do think there is some of the places one could look at not disabled child benefits. i do not quite understand why a male, or i guess could also be a female, but that is more likely to be a male just because if you
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have children late in life, you get a higher retirement benefit, and i don't quite understand why we have that notion. we also, since most spouses network, i think one can make a case for lowering of non-disabled spouse will benefit. another place besides the two benefits that they do increase, which i did a positive, i think they make a lot of sense raising benefits for an 85 year-old, adding back in college benefits for disabled beneficiaries and for deceased, for children of parents who have died. the survivor benefits, very little survivor protection. if you take a male and if you know what exactly identical earnings, one of them dies first, then the benefits of that family are cut in half. expenses for that family, just because one person died are not cut in half. and i think the survivor
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benefit, particularly for a couple with identical earnings, or nearly identical earnings need improve. and i think there's also a case to be made to moving for more universal coverage. so those are my four-point. my basic point, if you remember, nothing else, of this comment is that we have already had a 26% decline in benefits. we need to take into account the interaction between social security and medicare your candidate the politicians need to take a lesson from the 1983 amendments and really work together to solve our problems today. >> wendell, thank you very much. it's tough to put out a paper and ask a qualified professor in this town to give us some
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feedback on it. and you have done that, and very nicely i think. your message is well heard. we will all be staring at this chart. i like that you do the calculation and gave us the 26% decline in replacement rates just on what has already been scheduled. and i think you're giving us our work for the future to really talk about this interaction of medicare and social security. i think that gives a point well taken. and it is nice to you that things work in this town once in a while, for all of you who come to work everyday as staffers here. and try to move that, try to move the ball. i think the briefing that we have tried to say today really was to take us back to this question of weapons and benefit adequacy's. there is so much talk about the cuts that we try to give you a picture today of revenue size, and try to dispel the notion that we've had this balanced package in 83.
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in fact, the facts are that wasn't that balance in the long haul. it was predominantly cut, and that those cuts are still being phased in. and it is not the wrong time, in fact to ask about adequacy. and certainly would ask the american people about adequacy they are quite interested in paying more for adequate benefits. and i think that's a different story. we wanted to leave some time for questions today. we've got some great minds, so i will now open the floor. and my job is going to be to try to repeat the questions since we are being taken today. so i will try to be a good listener. any questions? go ahead, yes. [inaudible] >> would you support the idea of
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perhaps -- [inaudible] >> wendell, you got that question about the interaction of medicare and social security. would you advise recalculate and the way the cost of living adjustments are calculated? in particular to take into account the cost of medicare part b.? >> well, i definitely think we should take into account the cost of part b. and guarantee that the elderly at least receive some percentage that the part b. premium, which if we have 1% inflation for the next several years, the party and part d. premiums are going to eat up almost all of that trained for before a typical
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elderly person. and i don't think that's what we intended or that's what congress intended in 1972 when we installed the inflation index. i think there ought to be serious considerations to other forms of doing the cola. i think they get quite technical. i think some economist would argue that the change is better. but i think all of them could stand to use this concept of a cola protection against the part b. and the part d. -- part b right now has no form in a. whatsoever. so i think it ought to be seriously considered. >> any other reactions on the panel? of the questions? -- other questions? [inaudible]
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>> very prerogative. why we so imbalance marks while we all on the revenue side? so many people are asking for cuts. reactions? janice? >> am i on? now i am on. yes. i think one of the things that we are trying to look at is, over the long-term where is it that we really want to wind up in how we going to get there? and when you look at what's happening with benefit adequacy over the long-term, that doesn't speak well for more reductions in benefits. looking at what we actually did in the past, we were cutting benefits in 1983, the long term, and we knew it. we weren't hiding it. to go back and do it again, i think on the assumption that we are coming from a balanced
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package would be a mistake. if people decide to want to cut them again, we certainly can do that. but we shouldn't come from the mistaken assumption that we are starting from a balanced place. we are not. >> anything to add to that? >> yes, i would add to that that i think we're talking of something that is more balanced than other proposals for birth -- further benefit cuts because we've are have major benefit cuts. and they're not eating any yet. so we are seeing the benefits shrink. at the same time, the 1983 change really asked nothing more in the way of, from contributors, i'm employees and employers beyond 1990, the taxi we now have was scheduled in 1977 to take effect in 1990. and under current law it's going to be that in 2085. unless policymakers intercede and schedule revenues that will
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closely match the remaining program. and, finally, people say they're willing to pay for it, so let's allow them to do it. >> let me just emphasize, i think lost in the shuffle here is the fact that in the past we have had revenue increases in the long-term teacher, the 72 amendments had a revenue increase that went in and 2010 or 11, somewhere out there. which would have, which was time to come in when the baby boom retires because the demographers had figured out that this was going to happen, that the baby boom would put a tax increase in. as we ran into trouble in the '70s and '80s, those out your increases were pulled back. in that sense, the tax rate we have today, 6.2%, was set in 1977, and has not got that big so it's not like people been hit over the head with a tax
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increase every year in the social security program. i think that gets lost in a lot of the discussion. >> let me add one other thing, and that is, you know, they were looking at the social security program in this paper. you know, the other side of the coin that it increases a lot is medicare costs have gone up a lot over time. and one could try to reduce the increases that we see in the medicare program. the affordable care act which just got enacted didn't reduce the growth rate and medicare by about 1.3 percentage points per beneficiary per year. and while medicare benefits were improved, the expenditure levels under medicare were actually reduced. and i think a lot of the elderly still do not understand the rhetoric that was in the
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campaign trail about cutting medicare. but it does point that perhaps social security ought to be strengthened and that at the same time, we really worked to reduce medicare expenditures while increasing the quality of benefits that the elderly receive from the medicare program. [inaudible] [inaudible] >> so, this is a good question. i'm going to repeat it and then
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i would love it if you could -- the question was about stability benefits and in many in the context of increasing the retirement age have talked about having more people to the disability program, getting more people to the system. what is our reaction to that? >> well, certainly the disability program is there to provide benefits to people who are unable to work at all. if they have the condition that is expected to last a year to prevent them from working. but it is the most difficult part of the social security program to administer. the backlogs, i don't have the latest beta, but the backlogs are huge. you may know better than i. so too lightly say that, well, let the disability program take care of those people, or find some way to do that, to reduce ability assessment, disability assessments are hard to do.
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i studied that program in the past in the academy and studied the program in the past that there is no magic bullet to make the program easier to administer. and they often get denied once, getting i twice, finally get approved on appeal. i mean, it's a very difficult arduous process, and long waiting times. so that doesn't sound like a solution to making a higher retirement age more appealing. i haven't seen an answer that really deals with that. there might be one after but i haven't seen it spent its also important to remember that disability, the definition of disability under social security, it's not like an occupational disability. it's not like short-term. it's a very strict definition of disability. and so that i think we also have to take that into account. also the longevity increases are not uniform.
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higher income people are living longer. lower income people have not enjoyed the same increase in their longevity. their longevity has gone up not even enough to cover the two years that the retirement age already is going up. the various reports that are out there now do have these increases starting way out in the out years, but personally i have a concern that we really don't know what we need yet -- did yet in 83. we know what we did but what we don't know is the full impact of it. will people really wait the whole year? was a really wait the whole two years? who will wait? how many? how many will just be living on less?
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and the bowles-simpson commission also, if i have a correct, increases the age of 30 retirement. so the ability to retire at age 62 simply won't go away. there's arguments about that because th the age 62 benefit wd be so small, you may not want people taking it. it doesn't solve the problem for the nurse who was lifting a lot of heavyweight every day, or a janitor, or somebody else who has a very hard job. and who probably isn't getting the longevity. so it's a difficult issue, and i think we have a lot, and not to look at before we jump down that road. >> i'm going to come back to you as well if you make some points on this with his chart here about increasing the age. >> i think, this might be what wendell was alluding to, but when janice says would not quite
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sure of the impact of what we did in 1983, one of the things they did was increase the reward for delayed retirement. data used to be you'd get a 3% per year increments for waiting beyond the full benefit age. congress gradually raise that to now, it is not a% per year. that is a hefty increase. and i think people don't really understand it yet, but more -- we recently put out a brief on this topic. you really do get a big increase in your benefit if you wait until 70, if you can. now, not everybody can, but the point is that people probably have greater longevity and greater job prospects are the ones who can wait until 70. so we may not need to use compulsion to say everybody has to go without social security benefits at these early ages, if we really do a better job of helping people understand the advantages of waiting, if you can, under current law.
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>> so you are arguing, virginia, not only have category been made, but instead of safari been made. >> they are there and if people understood them better, we might have, we already have more people working at older ages, but that could be even better if people understood the incentives better. >> she said it, okay. >> virginia, in some ways to the new student of social security, it's a slightly odd concept that a cut in age is a cut in benefits. it sounds slightly odd. so, and i think what your cable is trying to show here is an blue and red our cats that are already been made because of the 83 amendment. can you just talk us through one more time for the new student, what we sing in his chart of why the difference between 62 and 70 and what's already been made?
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>> okay. essentially this is simply comparing the benefits that you would receive if the full benefit age were 65 versus if it were 70. 65 is the red bars, raising the age of the full benefit age to 70 is the blue bars. so people still have a choice of claiming benefits, did i say a backwards? 67 i mean. so people still have a choice of claiming benefits at any age between 62 and 70. but when we get to the blue bar stage, which is for people born in 1960 and later, we'll be reaching age 62 in 2022, and later. at any age they claim benefits it's going to be roughly 12 to 14% less than it otherwise would've been without this change in the law. >> okay, we have time for another question.
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all right. we have achieved something rare in washington, a perfect one our briefing. so i want my job is to thank the palace, thank you janice gregory, virginia reno and wendell very much. thank you as well. thank you very much. [applause] >> and if you moment a discussion of the history of the future of the federal budget process.
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>> a look now at the history and future of the federal budget process, and possible remedies for the deficit. from a symposium hosted by an organization of budget officers, this is an hour. >> my name is john steely and either pleasure or pain the president of the american association for budget and program analysis.
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welcome to our fall symposium in the budget act to recovery act, a balancing act. i'd like to introduce the others at the head table here with me today. i have mayor and randall who is a vice president from other programs. melissa merrill was last years president, and edit brigham who is the previous present and is serving her acting bp for the simple as that our panel today is entitled looking back to move forward, less formally the good the bad and the ugly of budgeting. what works well, not so well, and what we can do to improve it. to tackle this topic and many others where x. really fortunate to have for budget experts with us today. robert sunshine, deputy director of the congressional budget office, barry anderson former head of the budgeting and program expenditures division in the organization for economic cooperation and development, now a private consultant, marvin phaup, director of federal
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budget reform initiative with the pew charitable trust, and sue irving, director for federal budget issues at the u.s. government accountability office. we will have plenty of time for questions and answers shortly. i encourage you to think about them and utilize the mic in the middle of the floor. right now like to start off with a less formal tone, the good the bad and the ugly of budgeting and turn it over to marvin. marvin? >> thank you, john. [applause] >> i think milton friedman was once introduced similarly, and he said, he's the kind of person -- he's the kind of person who gets applause before he speaks and silence afterwards. [laughter] but, in fact, just to say a word or so about this panel, one of the big issues in organizing a panel like this is to decide the order in which people speak. and when we arrived here today, it was unclear on what reason
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one could apply to the difficult task of figuring out which order be would speaking. but it was also pretty much settled, like jonathan said, we're going to use danny werfel's performance measure, which is that this panel will succeed at its and at least half the audience is still awake. [laughter] whereupon, my good friend barry anderson seated here said, in that case, let's have marvin go first because if we get through that, success is assured. [laughter] >> marvin wasn't here when we pick the order. [laughter] >> not true, not true. actually, i like the other, i like the formal title for this panel better, looking back in order to move forward. because i actually have some trouble with trying to apply the good the bad in the ugly classification to the federal
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budget process. for a couple of recent. one of the reasons is not really sure that the hierarchy. i mean, is it true, as the order seems to apply that ugly is worse than bad? i mean, because there are many parts of the budget process that i would say are so ugly that they ought to be rated pg or higher, but they're not necessarily bad. some of them are effective, and so for me, i'm not sure i can make that hierarchy, that classification fit. but i'm sure other on this panel will do a better job of that. but there's a second reason that a think about agree on more than the way that good, bad and ugly fits, and that's the question of how you ask the judge a process can how you determined whether it's a good what a bad one. and i think the answer is that you have to judge it as a whole rather than by the individual parts. you could have infected seems to
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be many budget processes are better than the similar parts and the criterion i think for judging those results is, does a budget process and a budget itself succeed as forming an effective financial plan? more specifically, does it accomplish the two key objectives of budgeting and when we talk about family or government? i think the first of those objectives is, to smooth consumption over some planning horizon. now, 2.7 to us like an economist i would like to restate that and say, what we really mean by that smoothing consumption is, can the household, can the government plan its finances in such a way that consumption can actually be smoother than income, so that when disaster strikes, when the war comes along, when a recession occurs,
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or when the breadwinners lose their jobs, or when the price of owner occupied house, mortgage defaults, can we get through that period without the deprivation and sharp reduction in living standards that a better financial plan would have succeeded? doesn't provide consumption and financial stability? and i think the second objective of budgeting is not so much overtime, but for every point in time, and that is, does the budget process result in good choices? do we choose those things that we really want to have that are most effective, or i guess in danny's terminology, are they the best investments for our money? do we get the biggest bang for the block? now, i think that experience suggest that you get, budget processes that are more or less likely to be successful by those
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two criteria if they have three elements. the first one is come and i think this is absolutely the core, is that there have to be limits or constraints on the resources that are to be used during the period. and i think those limits have to be acknowledged up front rather than the end. it is not budgeting to take a sequence of actions to spend money, whether it is a household or a national government. and then at the end, when the process is finished, add them up and say, well, that's our limit. because all those things on which that we are confronted with, we may want to spend money for, they are all good things. there has to be a constraint or a limit to the budget process for to succeed. second thing it needs, and maybe this is so obvious that one shouldn't say it, but i'm a
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great fan of the obvious, and that is that there needs to be an empowered and rational motivated decision maker. resource decisions don't just happen. they have to be made by someone, and they have to be made by someone who has the information, at least as much information as anyone else in the group has about the choices that we are going to make. and the third thing that i think budgets need is any comprehensive and timely recognition of the cost of a reaction to make a decision to do this, not to do that. and you want to recognize at that point in time all the cost of that decision when you undertake it. i think the panel will agree, although i'm happy to be shown wrong, that recent experience suggests that there are two periods within all of our memories, the members of this panel's memory, in which the
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budget processes for the federal government worked better, and when it worked not so good. i think the 1990s under the budget enforcement act were generally agreed to be a period in which the budget process performed a better, at least in terms of providing financial stability. maybe the choices that people made, that we made about particular budget items weren't the greatest. maybe they didn't meet danny's requirement for best bang, best value for the buck. but there was at least as good stability. i think the way that bea has played out during the period of the 2000s is a less effective, show signs of a less effective budget process than during the '90s. i think that bea in the 1990s had two of those essential elements that were missing in the 2000s. one was there was an ineffective
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constraint provided by the discretionary caps and buy a go and second, backed by the political commitment at the president and the leadership of the congress, the budget committees were ineffective and powered, informed committee. capable of making decisions that reflected a broad agenda. in the 1990s, i'm not sure that any of the three elements are present. there's been little evidence that there is a limit that was effective for decision-making, or that anyone was capable and prepared to make those decision. this has been the era of the deeming resolution, meaning that we simply deem that there is a resolution being adopted. moreover, when you talk to members of congress he refused to adopt the budget, you end up with explanations like why endure the high cost of passing a budget resolution when it has
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almost no effect on subsequent fiscal decisions? i think limits were missing and the empowered decision-makers were missing. i think also in both periods we were missing this up front, comprehensive measure of costs in many cases, but two out of three is not bad for government work. thank you. [applause] >> thank you. first of all let me say how glad i am to be here. i'm sure you people remember "seinfeld." one of this episode, kramer had a thing on doing a coffee table book on coffee tables. [laughter] >> a great thing that i thought of in the past eight years as i traveled around the world because i thought i would've a coffee table book on the buildings housing the viewer of the budget, or the budget
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bureau. i want all around the world talking to people. and by the way, i really have done this, not the book, but if you want to look at the most interesting building anywhere i've ever seen, it's in berlin. because the budget office in berlin is in the old luftwaffe building that survived the war. if they were sitting in their lunchroom they overlook the berlin wall, the last remaining remnants of the berlin wall. but my purpose in raising this was not talk about the building but the people. in the last eight years as i've been traveling around the world in the buildings and talking to the people, it makes me so happy to be back year. [laughter] >> i would do this not trying to get ugly american and come out, instead i would just listen to what they have to say. and it is amazing how much we, you, export overseas. how they really listen to process things and adopt them. sometimes they are not always
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good. sometimes they misuse them, but it was never a problem for me to talk to groups like this because i knew you could understand what i was saying, where most of the time overseas i had to explain some of the ideas. so i am very happy to be here today, and to see this group. with that, let me start off with something that i really think ought to be said up front, and that is something i think you have heard many, many times before, and that is the process is not the problem. the problem is the problem. even though this is a process group and we're talking about it, i think we need to talk about the problem a little bit, and then tie it to the process issues. we have just had a variety of different policy proposals put forth by some commissions and groups, different people. and taking the view of the good, the bad, the ugly, i would like to talk about some of those. first of all, the good. my experience with commissions was not good in the past. i wasn't pleased at all when i
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heard that president's budget for 2011 really didn't budget at all for the out year, just put numbers there and didn't have any idea of what to do. instead it many commission. i was thinking back to all the commissions i've been familiar with, and with the possible exception of the capital budgeting commission which i think they do some good, i couldn't remember another positive commission that i could recall. that said, the bowles-simpson commission, the work that they have done so far in the chairman's release, i am incredibly impressed by. they have done such a good job, even so far. why do i say that? well, first of all they ignored the volney assignment that they were given. balance the budget and a primary ballot by 2015, look at the cbo baselines. the cbo baseline accomplishes
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that without doing a thing. yes, you have to let laws expire that are currently in place, and are due to expire. but given the political process that we're facing now, that may well happen in the next month or two. what kind of target is it where it's in the baseline, you don't have to do anything for? let alone, are you who know about primary deficits, not a concept that is used particularly here in the u.s., but it is used very quickly in the imf. for third world countries. that is for countries that can't quite actually get their act together. you say, well, why do you guys just try to balance the primary deficit first of all, and then do something real after that. that wasn't exactly an ambitious target to give to the commissi commission. but what did the bowles-simpson do? they ignored it. they did what they should do. they look at the larger issues, particularly the level of government issues.
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what level of government do we want in this country and i don't mean today. i don't need next year. i don't mean to you after that. but the long-term issues that we are facing, mostly because of demographic, because of social security and tax expenditures. those long-term issues you must resolve and level of government question before you can address it. now, i am very infuse that the bowles-simpson plan did exactly that. they look at the long terms that they look at also tax expenditures. something i've been talking about overseas quite a bit, and export that we've done from the u.s. that i won't necessarily say is one of the better ones. they looked at solvency of the social security system. and that's exactly what they should be doing, looking at the solvency of it, taking the long-term look. i also think others get a good job. you will note that i am saying
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praise about this, not because i agree with the specific proposals in there. there are pluses and minuses. but it's rather the idea of looking at the long-term, addressing the level of government, ignoring some of the gimmicks and things that could have been done, and taking a broader view. thank goodness for this. in fact, i'm so positive on bowles-simpson that i would suggest to you that a week from now, when they finally do take a vote, if the vote on the chairman's mark is 16-two against, i will still think very good of the commission. i think they have done what should have been done. i don't know what will come out, but even if everybody else vote against -- even if it is 18 do nothing, if they change the mind i think it will still be good. that's the good. let's talk a bit about the bad. let me take representative chart house these proposal. it is not addressed the size of government at all.
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it did not address the long-term. it only attempted to look at this phony goal of balancing the budget in 2015, which can be done again without policy proposals. there are policy proposals in it. i'm not taking a position on them. the tax increases or the spending cuts, what few there are in there. but for her. but it is not a serious effort. if you also, if you look behind some of the things she's had in their, printing costs and vehicle budget, i don't think are going to really address the choice of dollars in difficulties that we are facing. so, i am very critical of the. i would call it the bad because it really doesn't address the long-term and doesn't address the size of government issues. all right, that's bad. now what about ugly? of course those in the room when talking about budgeting and talking about ugly, we can't get by our former vice president,
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deficits don't matter. i can't come even though i spent a good portion of the last five, six years overseas, the impact of that resonate with the vice president of the united states saying that deficits don't matter, is still something that can't be underestimated. but let's get more immediate on some of the ugly. in response to the bowles-simpson proposals, we had the speaker of the house, ms. pelosi, saying simply unacceptable. okay, fine. but where is your plan? to say something is unacceptable and not come up with another plan, i would suggest is ugly. you had richard trumka of the labor same that the bowles-simpson plan a sickly says dropdead. well, we've all heard that language use in budgeting before. and if he doesn't like it, fine. where's his plan? what kind of spinning to see want for the future? what kind of revenues?
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we had grover norquist coming out saying, oh, no, this is a lousy plan because it violates the no to tax pledge. another thing i absolutely love about bowles and simpson, and others is they both didn't fall into the trap of what we do about the tax cut. that isn't the issue. particularly, it's not the issue in the near term. i mean in the long term. the issue in the long-term is what can we do to change this '80s tax code that we have to make it better in terms of raising the revenues we need to the size of government into efficient and economic growth. and they both, they both tackle that. and i admire them both for doing that. mr. norquist only says it violates the tax pledge. this is what i would call ugly. unless these people are going to come out with an alternative themselves that addresses these positions, then taking these
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soundbite potshots at this i don't think is good. so, if you don't want to cut taxes, or if you don't want to increase taxes to pay for the level of government that we have now, fine. show me where you're going to cut spending. if you don't want to cut spending, fine. then let's be up front about how much of a tax increase that is why today. and if you don't want to do anything, then i'm afraid that that is what i would call something that belongs in the ugly category. thank you. [applause] >> i'm delighted to be here. the last time i was here a couple years ago the organization was gracious enough to present me with an award, for work i done at congressional budget office for budget deficits. on the same day it presented
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will be with an award for paper he wrote that analyzed and was very critical of cbo's budget estimates. [laughter] >> i wasn't quite sure how to take that. but i'm glad to be here today. first of all, in terms of the good, i think we need, i think some of the historical perspective is useful in the sense that we've come a long way, i think, in the last few decades. i was working in the budget area when the budget act was initially put in place in 1974, but we've got mechanisms that much more effective now than we had in the decades, several decades ago. we now have a system for looking at the budget overall, rather than just one piece at a time. before 1974, committees did their things, congress passed bills, somebody added it up at the end of the year, and whatever it turned out to be
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that's what it was. now at least we have a system of an overall budget resolution, sometimes, and a mechanism that budget committees are pulling things together. so we now at least have a for him, and a mechanism for looking at the budget as a whole. we have the congressional budget office, which provides independent cost estimates to the congress. ..

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